Every summer the IRS and its Security Summit partners run the same campaign, and every summer most small offices ignore it. This year's ran from early July. Here is the part worth your attention. A written information security plan is not optional If you prepare returns for money, you are a financial institution under the FTC Safeguards Rule. That means a written information security plan is required by law. Not recommended. Required. It has been for years. The IRS has said it plainly again this year, and it ties to your PTIN: when you renew, you are attesting that you have a data security plan in place. Why offices skip it Because it sounds like a compliance project and nobody has time. It is not. The IRS wrote the template for you. Publication 5708 is a fill in the blanks WISP built specifically for small practices. A one person office can finish a real one in an afternoon. What a usable plan actually contains 1. Who is responsible. One named person. In a solo office that is you, and you still write the name down. 2. What data you hold, where it lives, and who can reach it. Cloud software, local machines, the scanner, the email account, the filing cabinet. 3. How access is controlled. Unique logins per person, multi factor authentication turned on everywhere it is offered, no shared passwords. 4. What happens when something goes wrong. Who you call, in what order, and how you notify clients and the IRS Stakeholder Liaison. 5. How you dispose of data. Paper shredded, drives wiped, old machines cleared before they leave. 6. A review date. Once a year, before the season, not after a breach. Three things to do this month - Turn on multi factor authentication on your tax software, your email and your bank product portal. This one control stops most of what actually happens to small offices. - Check your EFIN return count in e-Services. Log in and compare the IRS count to what you actually filed. If the IRS number is higher, somebody is filing on your number. Almost nobody looks at this, and it is the fastest way to find out you have been compromised. - Write the plan. Download Publication 5708, fill it in, date it, save it where you can produce it.

Corporations Mastering, Business Level 2 is open in the Classroom. Fifty nine lessons on Form 1120 and Form 1120-S and everything around them, beginner to expert, with the authority named on every page. Rather than list the syllabus again, here are three ideas from inside it. If these three land, the rest of the course will land too. One. Going in is free. Coming out is not. Putting property into a corporation in exchange for stock is generally tax free under section 351. No gain, no tax, basis carries over. It feels like nothing happened. Taking property back out is a different world. A corporate liquidation is taxed twice on the same appreciation. The corporation is treated as if it sold the property at fair market value, which is a corporate level gain, and then the shareholder is taxed on what he receives against his stock basis. Even a plain distribution of appreciated property triggers corporate gain under section 311(b). So before a client puts an appreciating asset inside a corporation, somebody has to say out loud: there is no cheap way back out of here. Land, buildings, anything expected to grow. That sentence, said at the right time, is worth more to a client than a year of return preparation. Two. Distributions come off basis before losses do. An S corporation owner takes $40,000 out during a year the company loses money. He has $50,000 of basis. The ordering rule takes the distribution first. Basis drops to $10,000, and only $10,000 of loss is allowed. The rest suspends. Flip the same year around. If he had left the money in, the loss would have been allowed against the full basis. Same company, same cash, different tax answer, decided entirely by when money moved. That makes it a December conversation. In March you are just reporting what already happened. Three. A guarantee is not basis. Covered this in the case study post, so short version. Signing personally for the company's bank loan gives the shareholder no basis. Lending the money to the company directly does. It is a structural difference that most owners have never had explained to them, and it decides whether their losses are deductible.

This is the single most common expensive mistake I see on S corporation returns, and it is almost never caught by the preparer who made it. The situation A construction S corporation. One shareholder. The company had a bad year and lost about $180,000. The owner had put $20,000 into the company when he started it and nothing since. The bank had lent the company $200,000. The bank would not lend to the company alone, so the owner personally guaranteed the loan. He signed. His house was on the line. In his mind, and in his previous preparer's mind, he was on the hook for $200,000, so he had $200,000 at risk, so he could deduct the loss. The prior return deducted the full $180,000 on his 1040. What the law actually says A shareholder gets basis two ways. Money or property he puts into the corporation for stock, and money he lends directly to the corporation. That is the list. A guarantee is not on the list. Guaranteeing a corporate debt gives the shareholder no basis at all, and it does not matter how real the exposure feels. The Fourth Circuit settled this in Estate of Leavitt back in 1989 and the regulations say the same thing today: basis comes from an actual economic outlay, and signing a guarantee is not an outlay. It becomes one only if the guarantee is called and the shareholder actually pays. So his basis was $20,000. Not $200,000. What the number really was - Deductible loss in the current year: $20,000, which is his basis. - Suspended and carried forward: $160,000. - Deducted on the return as filed: $180,000. - Overstated by: $160,000, on a return that had already been accepted. Here is the part that is actually useful The suspended $160,000 is not gone. It carries forward with no expiration and it comes free the moment he has basis again. The fix is structural and it is not complicated. Instead of guaranteeing the company's bank loan, the shareholder borrows from the bank personally and then lends that money to the corporation. Same bank, same money, same personal exposure, and now it is a direct shareholder loan, which is debt basis. The economics barely change. The tax result changes completely.